Budget preview: Siemens on how tax may hold the key to 'Make in India'
International Tax Review is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Budget preview: Siemens on how tax may hold the key to 'Make in India'

With the Indian Budget fast-approaching, Subhankar Sinha, senior vice president, head of tax for the South Asia region at Siemens, looks at the tax measures that could be used to incentivise the government's 'Make in India' campaign.

On September 25 2014, Prime Minister Narendra Modi kicked off the 'Make in India' campaign in the presence of a large number of business leaders, promising a transparent and secure environment to do business in the country. The campaign is a part of his strategy to boost manufacturing in India, and thereby create more jobs and increase the country's growth trajectory.

Clearly tax policy will play an important role if we want to attract big-ticket investments through this campaign. After the not-so-happy experience of several large taxpayers with the tax administration in the past few years and highlighting of the issue in several fora time and again, the new government responded by announcing a number of positive measures (for example, the use of a range to calculate arm's-length pricing under transfer pricing (TP) provisions instead of arithmetic mean) in its first Budget. However, more steps need to be taken quickly to boost the confidence of investors by showcasing a stable tax regime.

  •  We need to simplify laws and remove unnecessary regulations to bring down the cost of compliance. For example, introduction of rational safe harbour norms under TP regulations for the manufacturing sector with dispensation for maintaining documentation can bring significant relief to the taxpayers. Similarly we can scrap the domestic TP regulations to facilitate ease of doing business.

  •  As originally envisaged in the Direct Taxes Code Bill 2009, India needs to gradually reduce the corporate tax rate to 25% from the present level of 30% (excluding surcharge). This will make the manufacturing sector competitive vis-a-vis other countries in Asia.

  • The concept of special economic zones (SEZs) was introduced in 2005 to promote export of products made in India through various concessions under direct as well as indirect tax laws. Though a tax holiday for units in the SEZ is still available, the subsequent introduction of minimum alternate tax (MAT) on book profits and dividend distribution tax (DDT) on income distributed as dividends led to a virtual paralysis of the scheme. We can revive manufacturing in SEZs by eliminating MAT/DDT altogether or by imposing a token levy.

  • Often the taxpayers in India have to deal with conflicting views of tribunals or courts on a variety of topics. This leads to endless litigations (with consequent impact on costs) which can easily be avoided if the Central Board of Direct Taxes (CBDT) or the Central Board of Excise & Customs (CBEC) intervenes and issues circulars or clarifications to bring finality on interpretations.

  • In August 2013, the previous government set up a Tax Administration Reform Commission (TARC) under the chairmanship of Parthasarathi Shome to study Indian tax administration operations and identify key areas of improvement. The committee presented its first report to the new finance minister earlier this year. The recommendations of the TARC include enhancing "customer focus", lowering compliance costs and strengthening dispute resolution processes. Implementation of TARC's recommendations in a time-bound manner will go a long way in not only reforming the tax administration but making taxpayers' lives much easier.

  • The government must defer the general anti-avoidance rules (GAAR), due to kick in from April 1 2015, by at least three years. Ideally GAAR should be introduced only after the tax administration reforms are complete.

  • One of the most significant reforms for which the entire business and investor community has been keenly waiting since 2010 is the implementation of goods and services tax (GST). As GST will subsume most of the indirect taxes at the central (excise duty, service tax) and state (VAT, stamp duty) level, it will also improve the ease of doing business considerably by bringing down the incidence of multiple taxes. The government has set a target of 2016 to launch GST, and this time we must make it happen.

Given the positive vibes generated by the 'Make in India' campaign so far, we must seize the moment and use our tax policies to encourage investments into the manufacturing sector. Hopefully the finance minister will address some of the above issues while presenting his second Budget on February 28 2015.



Have you signed up for our India Budget web seminar? Register here.



more across site & bottom lb ros

More from across our site

The Senate report into PwC’s scandal is titled ‘The cover up worsens the crime’
Law firms that are conscious of their role in society are more likely to win work, according to a survey of over 23,000 in-house professionals
The firm’s tax business generated a quarter of HLB’s overall revenues in 2023
While successful pillar two implementation will require collaboration across all units, a combination of internal and external tax advice is at the centre of the effort
Binance has also been accused of manipulating foreign exchange rates via currency speculation and rate-fixing
Six individuals should have raised questions over information they received but did not breach professional standards, according to the firm
The partnership of KPMG UK has installed Holt for a second term as CEO and senior partner; in other news, a Baker McKenzie partner has sued the IRS
HSBC has settled a claim originally worth £240m relating to a failed film tax relief scheme without admitting liability or wrongdoing
Their prediction comes after the IRS announced it would send compliance letters to large foreign companies emphasising their US tax obligations
The ex-client is also suing the entire EY Australia partnership
Gift this article